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In Q1FY25, M&M delivered a decent set of performance on a quarterly basis backed by healthy growth in both the segments. Revenue for the quarter grew by 12% on YoY basis to Rs.270bn (vs CEBPL est. of Rs.294bn) which is lower than our estimates. Automotive business grew by 13% YoY to Rs.189bn and FES segment grew by 9% YoY to Rs.81.4bn. Margin during the quarter came at 14.9% (excluding investments from JV& Subsidiary) (+126bps YoY/+178bps QoQ) led by RM cost. EBITDA grew by (22.4% YoY/+22% QoQ) to Rs.40bn (vs CEBPL est. of Rs.39bn) and APAT for the quarter stood at Rs.26bn (-5.3% YoY/+30.6% QoQ). Management expects to maintain high teen growth going forward while maintaining the margin despite reduction in prices of XUV700.

* The Automotive segment margin continued to expand driven by RM cost benefit, with the EBIT margin increased by 178bps YoY to 9.5%. Farm Equipment segment’s EBIT margin came in at 18.5% expanded 101.7bps YoY/269bps QoQ. The AUTO/FES EBIT mix stood at 54:46 in Q1FY25 compared to 68:32 in Q4FY24.

* Successful launch of XUV3X0: Since launch M&M received ~55k booking for its newly launched vehicle XUV3XO which has capacity of around 9000/month. In this Compaq SUV segment XUV3XO is competing with its rivals like Nexon, Brezza, Venue, Sonet , Magnite, Kiger etc. It's a very competitive segment where base model pricing starts from Rs.7lakh and goes up to Rs.15 lakh. M&M with the XUV3XO launch is aiming to maintain their market share in the segment which is roughly around 50% of the SUV segment. With XUV3XO, the company is offering some of the features which are available in XU700 which might attract some customers from the large SUV segment. However, the net target market is in favor of 3XO. We have to wait on how new bookings takes place within the portfolio and how mix takes shape in coming quarters.

* Order book for XUV3XO-55k, XUV700-13k, THAR-42K, Bolero & neo-8K, Scorpio-N-58k. The company is investing in product development, with a focus on the SUV segment and has a wide and strong product portfolio, with many new products in the pipeline. Management is focusing on capitalizing on its market leadership of the Auto and Farm sectors, unlocking potential in MMFSL and TechMahindra, and focusing on growth gems with 5X growth over 7-8 years.

Outlook and Valuations: Company is increasing its capacity significantly from current 49k/month to 72k/month by FY26, in line with increasing SUV demand which is expected to grow 10-11% in FY25. We expect the Automotive segment to register healthy growth in coming years. Additionally, in the tractor segment, a series of launches are underway in various categories, which will support the growth of the Farm Equipment segment. Further, launches in the Farm machinery segment (high margin) are also expected to do well going forward. Additionally, management’s capital allocation to remain on core business will further create shareholders in coming years. We arrive at a REDUCE rating on the stock with a SOTP TP of Rs.3,005 (based on 22x FY26E Core EPS + subsidiary valuation).

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